Dr. Practice is a dermatologist in a local community that has been hit hard by the recession. He has staff privileges in a local hospital that has been a great referral system for his predominantly medical dermatology practice. In an attempt to increase revenues, Dr. Practice joins the staff of a nearby competing hospital. Immediately, he begins to see an increase in his patient referrals, both from the emergency room and staff of the new hospital.

After six months of being on the dermatology staff of both hospitals, Dr. Practice receives a warning letter from the first hospital, stating that he has 90 days to terminate his newly obtained dermatology privileges at the second hospital. Dr. Practice ignores the letter. Six months later, his dermatology staff privileges are terminated from the first hospital. A friend suggests that the first hospital has used "economic credentialing" in terminating his staff privileges. Isn't this illegal?

A recent Arkansas case ruled against the concept of economic credentialing. In Arkansas, Baptist Health's credentialing policy precluded staff hospital doctors with interests in competing hospitals from having privileges at Baptist. The trial judge found that Baptist's policy was intended to suppress competition, rather than further patient care.

Exceptional protection

The crux of this case is the concept of the patient-physician relationship. According to the deciding judge, this relationship is entitled to exceptional protection. The state of Arkansas sought above all else to protect the patient's right to the physician of their choice. An act such as Baptist Health's economic credentialing policy that interferes with that choice, and that, by extension, interferes with the patient-physician relationship, was considered to be contrary to public policy.

Little Rock-based Baptist Health, Arkansas' largest hospital system, instituted what it described as an "economic conflict-of-interest policy" in 2003. Twelve staff cardiologists, who owned a distinct specialty facility called the Arkansas Heart Hospital, lost their privileges and sued Baptist Health. The Arkansas Supreme Court in 2006 stopped Baptist from ending the doctors' privileges while the case headed to trial.

Recently, the trial court ruling permanently barred Baptist from enforcing its policy. This case was watched closely by a variety of physician groups, including the American Medical Association (AMA), that argued that economic credentialing policies do nothing to protect patient care and serve only to restrict it.

"What's important is the court's recognition of the sanctity of the patient-physician relationship, the importance of continuity of care in that relationship, and patients' ability to have a choice in where they receive their care," says Rebecca J. Patchin, M.D., chairman-elect of the AMA's board of trustees.

Currently, at least 13 states have laws that restrict or prohibit economic credentialing by hospitals. Arkansas was not one of them. The awarding of clinical privileges should be based on physicians' skills and expertise, not financial considerations, the physician plaintiffs argued.

The decision is among a few that directly address economic credentialing and could have a nationwide effect, as other hospitals and courts turn to the opinion for guidance. Because the court found Baptist's credentialing rules a violation of public policy, the hospital system likely cannot enforce it against any physician in the state.

The defendant hospital argued that its policy was aimed at protecting "the community's long-term access to a broad range of services" and protecting patients from "an inherent conflict of interest" when physicians refer to their own (or other) facilities. Such referrals hurt the hospital's financial health by steering away higher-paying patients and leaving it with unprofitable charity care, the hospital maintained in court documents.

No harm

The trial court recognized that hospitals do have an interest in protecting their economic viability and ensuring access. However, the trial judge found no evidence that Baptist had been harmed by competition from the other facility.

The court noted that this policy's purpose was meant to discourage competition, ruling it an "unconscionable trade practice that affronts the sense of justice, decency, and reasonableness because it impinges on fundamentally important public policies without adequate countervailing justification."

It should be noted, however, that lawyers who represent hospitals said the decision, while significant, evolved from unique circumstances and does not prevent hospitals from using economic credentialing. Dr. Practice needs to find out the laws in his jurisdiction. A call to a local health law attorney is appropriate.

Dr. Goldberg is the director of SkinLaser & Surgery Specialists of New York and New Jersey; director of Mohs surgery and laser research, Mount Sinai School of Medicine; and adjunct professor of law, Fordham Law School.